Bruce Whitfield  00:05

On to something altogether more cheerful, the JSE one of the few markets in the world that was positive today, Meryl Pick. Meryl is a Portfolio Manager at the Old Mutual Investment Group, on the line to us from Cape Town this evening. Yeah, weakening dollar, softer US markets, softer European markets, London closed for the day. Was there a highlight anywhere?

Meryl Pick  00:40

Good evening, Bruce, and good evening to your listeners. Yes, well, I think a weaker dollar tends to be good for the Rand, good for commodities, obviously, we are a commodity producing nation and an emerging market. So, on days like this, we do catch a bit of a bridge at last, and a bit of a reprieve. I think in particular, precious metals continues to be strong. The gold shares rally again today after a bit of a breather last week. And certainly, the PGM complex and gold price stand out today as strong performers.

Bruce Whitfield  01:27

Absolutely, we only had one set of any results that are of interest, and we're going to talk to Redefine in the next half hour of the show. But Redefine's results are disappointing. And it does, I think, show some of the stresses at play in the property sector. They've got big shopping centres, they've got big office space, and unfortunately, in terms of the office space, a lot of it's empty.

Meryl Pick  01:48

Exactly, Bruce. You know, I think we are probably at a structural or some sort of crossroads we will approach and pass through over the next few years. You know, I was reading a commentary from one of the consulting firms, I think Deloitte, citing that their younger, junior employees are struggling to learn skills, they're finding that their communication skills are not as good, and there's a lot of stress in the organization. And you think is this perhaps not because of hybrid work, work from home, whereas more senior established employees perhaps enjoy it. They already know what they're doing, and they want to manage their lives. So, I think that structural change as we've seen post-Covid, is clearly having an impact on the office portfolio. 

When you look through Redefine's results across the board, escalations were negative, meaning - or revisions were negative, means that contracts have been signed at lower rates, but in particular, I think double digit negatives in the office segment and their renewal, very low in the office segment. So, clearly still suffering from oversupply. But I think also, perhaps a structural change in demand. And time is yet to tell whether that is truly permanent, or whether we will all return to the office one day.

Bruce Whitfield  03:23

Yeah, and look, I think a lot of managers are getting very frustrated and very, very bored of people working from home. I find it - in many cases, I think a lot of people believe it's a lot less productive, and people are certainly may be much happier in their environments, but teams are dislocated, teams are discombobulated. And it's, yeah, I think it's making it much tougher to operate. 

In terms of your... I mean, you are an analyst in the retail sector, I'm looking at South African retail shares getting battered, bludgeoned, and beaten from every angle. Pick n Pay's announced share price has been sliding ever since its results last week, that extra 552 million Rand on diesel and all of the guys have been spending hundreds of millions of Rand on fuel just to keep the lights on, to keep the food cool. And they were warning last week of riots. Of course, now, which Sasria says they won't cover or can't cover. You know, the system does certainly feel like it's rickety at best and falling apart quite quickly at worst.

Meryl Pick  04:24

Agreed. So, again, quite clear from Redefine's results that diesel costs are having an impact either on landlords or tenants, one way or another it is sucking cash out of the system at both the corporate and the consumer level. And certainly, discretionary income that might be flowing into retail, one could speculate it's probably at some point would have large scale data on just how much of that is going into loadshedding, you know remediation spend, call it at a household level. And then clearly high fuel costs having this full on effect across almost everything. So, we are... it would be difficult to imagine how retail sales would hold up in this period. So, I think it's really going to come down to who's got the best strategy to maintain or grow market share, to maintain customer loyalty. 

The choice between protecting margins versus maintaining market share is going to be a key one that each retailer is going to have to make. And perhaps the silver lining would be for those who've got the balance sheet and firepower, to acquire and consolidate smaller independents, where they still remain. A lot harder to do in the Pick n Pay, Shoprite space, given that food retail is really quite consolidated. Perhaps still in the more discretionary space, clothing, home, and kind of hardware space. But it is a difficult market, and from the work that we've done, loadshedding is there to stay. At some point though, these things will be in the base for consumer spend, and they will be in the price, even with Redefine in the property sector, at some point one has to look and say, where is the negativity priced in?

Bruce Whitfield  06:27

At some point, it can't get much worse. We just don't know where that point is.

Meryl Pick  06:31

So, companies can still produce worse results. But, you know, we've seen some of the other retailers put out results that look bad on the surface, negative or flat, and the share price goes up. So, it all depends on what are the expectations baked into the price.

Bruce Whitfield  06:47

Meryl Pick, thank you, Portfolio Manager at the Old Mutual Investment Group.